Korea's worldly ambitions

Hyundai, the ambitious Korean company, hopes to become the world's fifth-largest car-maker by 2010. But the cars will need a makeover to reach that target, says John Simister

Monday 14 June 2004 23:00 BST

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Seoul is less than an hour's drive south of the demilitarised zone that divides North and South Korea. On the far side of the four-kilometre wide "DMZ" - a haven of wildlife, and a theatre of propaganda and out-psyching - is a 300-metre wide North Korean flag, the better to be seen from the capitalist South, and a deserted "propaganda village" to show how sweet it is to be loved by President Kim Jong-il.

Seoul is less than an hour's drive south of the demilitarised zone that divides North and South Korea. On the far side of the four-kilometre wide "DMZ" - a haven of wildlife, and a theatre of propaganda and out-psyching - is a 300-metre wide North Korean flag, the better to be seen from the capitalist South, and a deserted "propaganda village" to show how sweet it is to be loved by President Kim Jong-il.

On the south side there is a beautiful dual carriageway, freshly lit and sign-posted, running right up to the border - but bearing no traffic. On the northern side there is just the flattened earth where the road may one day continue. On the south side there is also a brand new, hi-tech railway station with prominent signs directing you to the platform for trains to Pyongyang, capital of the North. But there is, as yet, no rebuilt railway beyond the border. One day it will go all the way through China to Siberia, but for now there are gaps. It is all very surreal.

Technically, the war is still on; the minefields and military prove it. For all that, though, the citizens and businesspeople of Seoul go about their economic activities aware of the North as no more than a low, background hum. Half a century after the Korean War, new lives have been made and the past is barely relevant.

Seventy per cent of the cars on South Korea's roads are from Hyundai Motor, whose products have included Kia since 1998. Most of the Hyundais are large Sonata saloons. Petrol is expensive, and car tax more so, but status matters to the South Koreans, and a small car is no sign of success. South Korea is no longer a closed market, and imported cars attract a duty of just eight per cent. However, imports account for just one per cent of sales, with BMW the biggest player. Almost all of those imports are cars in the luxury class, with Lexus running BMW an increasingly close second. (Japanese popular culture has finally been let into Korea, too.) Diesel engines in passenger cars are not allowed, although this is about to change, which explains the popularity of diesel SUVs able to take advantage of much cheaper fuel.

And now Hyundai Motor has declared its ambition to become the fifth-largest carmaker in the world by 2010, taking its place alongside the likes of General Motors, Toyota and Ford. It currently ranks seventh in automotive output, so it will be intriguing to see which conglomerates it will elbow aside if the company's fighting talk becomes reality.

To do this, Hyundai will need to make its products appeal to more people in more diverse markets, and here lies the paradox. Today's buyers are very brand conscious, so an automotive chameleon would have little appeal beyond that of a wheeled domestic appliance. Extra sales will have to come from overseas, as the Korean market is almost saturated. There is also the problem of how to differentiate Hyundai from Kia, so the two brands' products do not overlap.

Things could have been different. The economic collapse of East Asia in the mid-1990s shook the Korean motor industry and contributed to the collapse of Daewoo. Its vehicle-making operation was hived off from the parent Daewoo
chaebol, or trading house, as was that of Hyundai, which then formed a technical and strategic alliance with DaimlerChrysler. The German company also took a 10 per cent stake in the new motor division, keen to benefit from Hyundai's truck operation in China, but has just sold it again to raise cash. Hyundai also tried to buy Daewoo, which later came into the hands of General Motors, whose technology it had long used. Hyundai acquired Kia in 1998. That leaves two other players: SsangYong, briefly owned by Daewoo but independent again; and Samsung, whose cars are effectively locally-built Nissans.

The man overseeing the positioning of Hyundai and Kia is Kim Young-il, a former designer who previously helped shape the SsangYong Musso SUV and the Panther Solo. What, then, are the characteristics of each make?

"We have a short history," says Mr Kim, "and, frankly, we do not have a characteristic. What we do have is an emotional feeling." That "e" word is a favourite among the world's car designers and marketeers, but it is hardly a commodity to be picked off a shelf. So Mr Kim elaborates: "Look at the front of the Sonata, at the shape of the bonnet and fender, or at the flanks of the Santa Fe off-roader. They're sculptural, muscular. That's our look."

What Hyundais lack so far is a consistent "face" - currently some have vertical bars like teeth, others (such as the Santa Fe and the neat, European-styled Getz supermini) have neater air-slots - but the designers are working on that. The idea is to move Hyundai a little up market, to make it a "smart buy" instead of a cheap car - much as Skoda has done. Kia, meanwhile, will become a "sportier" brand, and to this end a new sports car is on the agenda. Its last one was a remake of the 1989 Lotus Elan, and was not a great success. That said, Hyundai is re-entering the World Rally Championship from late 2006. Clearly there remains some brand-identity confusion.

Beneath the new images will lie shared platforms and componentry, bringing the current tally of 21 platforms down to between eight and 14 by 2008 (again, there is still some fine-tuning to do). Examples are the next Hyundai Trajet and Kia Sedona, MPVs to be built on a common base. There is also Hyundai's new "global engine", an aluminium four-cylinder unit of between 1.8 and 2.4 litres, which will also be used in American Chrysler products.

Such global ambitions are the key to that fifth-place goal. Hyundai's Chinese ventures will play a big part in this - the Sonata and now the smaller Elantra are two of China's most popular cars - and the Indian plant is the sole supplier of the Atoz/Amica mini-car. Other assembly plants include those in Turkey and Egypt, and a new factory is to be built in Slovakia. By 2010, the plan is for Hyundai and Kia to produce a frightening 5.7 millions cars annually between them, up from 2.8 million in 2002. By then, maybe that road link to the North will be open, too.